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Carlyle Creates Fund to Buy Corporate Debt

By Thomas Heath
Washington Post Staff Writer
Tuesday, April 22, 2008

The Carlyle Group said yesterday that it had created a $450 million fund to buy corporate debt being sold by banks at discounted prices, continuing a flurry of activity by the District private equity firm following the collapse of one of its funds in Europe last month.

Carlyle has completed fundraising for CCP Financing I Ltd., which is expected to buy senior secured bank loans -- those that are paid first if a borrower defaults. Carlyle plans to take advantage of the turmoil in the credit markets by scooping up loans at below-market prices and financing the purchases with 12-year debt.

In recent weeks, the big Wall Street banks have been eager to unload corporate debt to shore up their balance sheets.

"To Carlyle's credit, they were able to put together a financing arrangement that's hard to do in this market," said Gina M. LaVersa, a managing director at Precision Capital, an investment advisory firm that specializes in such deals.

The buyout firm also has in the works a similar $500 million debt fund, which is being arranged through Frankfurt-based Deutsche Bank, according to a source familiar with the fund but who is not authorized to speak about it publicly.

In the past several weeks, Carlyle has been busy closing funds and buying assets, including the purchase of a marquee office building on New York's Madison Avenue for nearly $700 million, as it seeks to put to work some of the $36 billion in investors' cash it is sitting on.

The firm announced two weeks ago that it had formed a $1.35 billion fund to troll for companies and securities whose value has been beaten down by the current economic malaise.

The firm has not shied away from buying distressed financial assets since the meltdown of Carlyle Capital, the highly leveraged, publicly traded European affiliate that collapsed last month after it defaulted on $21.7 billion in assets. Carlyle Capital got squeezed when the value of its mortgage-backed securities fell, prompting Carlyle's lenders to demand more cash to compensate.

The senior bank loans CCP Financing I is buying have priority over a business's other loans, bonds or financing, which makes them the first to be paid if a business goes bankrupt. As a result, senior loans are less risky than owning mortgage-backed securities in the current financial climate.

Overall, Carlyle manages $10.3 billion in leveraged finance assets, including its U.S. Leveraged Finance unit, which has $4.4 billion in assets.

The Carlyle Group, founded in 1987, is a global private-equity firm with $81.1 billion under management committed to 60 funds. It employs more than 1,000 people in 21 countries. The firm's portfolio companies have more than $87 billion in annual revenue and employ more than 286,000 people around the world.

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